-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KYMq3ygnkQVrIy3eaZpGobn9PD6TeaVBtBdC03ZCRiWJGnPYnVT69aj4tjY+kmJY wOuHcQ6E/j1Bkm5KunPaUQ== 0000904280-03-000086.txt : 20030514 0000904280-03-000086.hdr.sgml : 20030514 20030514111636 ACCESSION NUMBER: 0000904280-03-000086 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PVF CAPITAL CORP CENTRAL INDEX KEY: 0000928592 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341659805 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24948 FILM NUMBER: 03697382 BUSINESS ADDRESS: STREET 1: 2618 N MORELAND BLVD CITY: CLEVELAND HEIGHTS STATE: OH ZIP: 44120 BUSINESS PHONE: 4109919600 MAIL ADDRESS: STREET 1: 25350 ROCKSIDE ROAD CITY: BEDFORD HEIGHTS STATE: OH ZIP: 44146 10-Q 1 fm10q33103-1224.txt FORM 10-Q 3-31-03 PVF CAPITAL CORP. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20552 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2003. [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to ________ Commission File Number 0-24948 ------- PVF Capital Corp. ------------------------------------------------------ (Exact name of registrant as specified in its charter) United States 34-1659805 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30000 Aurora Road, Solon, Ohio 44139 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (440) 248-7171 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable --------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES NO X --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 Par Value 5,786,493 - ----------------------------- ------------------------------- (Class) (Outstanding at April 30, 2003) PVF CAPITAL CORP. INDEX Page Part I Financial Information Item 1 Financial Statements Consolidated Statements of Financial Condition, March 31, 2003 (unaudited) and June 30, 2002. 1 Consolidated Statements of Operations for the three and nine months ended March 31, 2003 and 2002 (unaudited). 2 Consolidated Statements of Cash Flows for the nine months ended March 31, 2003 and 2002 (unaudited). 3 Notes to Consolidated Financial Statements (unaudited). 4 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3 Quantitative and Qualitative Disclosures about Market Risk 15 Item 4 Controls and Procedures 15 Part II Other Information 15 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, JUNE 30, ASSETS 2003 2002 ------ UNAUDITED ---------- ---------- Cash and cash equivalents: Cash and amounts due from depository institutions $ 8,583,888 $ 4,526,976 Interest bearing deposits 1,468,452 1,736,712 Federal funds sold 3,050,000 8,050,000 ------------ ------------ Total cash and cash equivalents 13,102,340 14,313,688 Securities held to maturity 30,049,621 55,121,211 Mortgage-backed securities held to maturity 3,632,326 7,297,206 Loans receivable, net 583,984,013 563,550,556 Loans receivable held for sale, net 34,539,862 11,679,735 Office properties and equipment, net 11,536,097 9,817,348 Real estate owned, net 533,798 564,316 Real estate held for investment 1,650,000 1,650,000 Stock in the Federal Home Loan Bank of Cincinnati 10,300,199 9,947,624 Prepaid expenses and other assets 6,572,305 5,678,431 ------------ ------------ Total Assets $695,900,561 $679,620,115 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities Deposits $488,263,091 $479,672,218 Advances from the Federal Home Loan Bank of Cincinnati 120,133,440 120,739,695 Notes payable 6,484,110 8,288,020 Advances from borrowers for taxes and insurance 4,352,544 7,320,613 Accrued expenses and other liabilities 19,697,943 11,300,991 ------------ ------------ Total Liabilities 638,931,128 627,321,537 Stockholders' Equity Serial preferred stock, none issued -- -- Common stock, $0.01 par value, 15,000,000 shares authorized; 6,088,469 and 6,064,809 shares issued, respectively 60,885 60,648 Additional paid-in-capital 37,452,758 37,412,482 Retained earnings-substantially restricted 22,439,883 17,627,665 Treasury Stock, at cost 301,976 and 286,276 shares, respectively (2,984,093) (2,802,217) ------------ ------------ Total Stockholders' Equity 56,969,433 52,298,578 ------------ ------------ Total Liabilities and Stockholders' Equity $695,900,561 $679,620,115 ============ ============
See accompanying notes to consolidated financial statements PAGE 1 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ----------------------------------------------------- 2003 2002 2003 2002 Interest income Loans $ 9,888,547 $10,538,608 $30,809,110 $33,784,506 Mortgage-backed securities 59,648 159,278 235,632 595,037 Cash and securities 467,092 913,578 2,074,355 2,835,903 ----------- ----------- ----------- ----------- Total interest income 10,415,287 11,611,464 33,119,097 37,215,446 ----------- ----------- ----------- ----------- Interest expense Deposits 3,403,048 4,810,408 11,756,659 16,452,972 Borrowings 1,336,654 1,420,781 4,125,325 4,667,692 ----------- ----------- ----------- ----------- Total interest expense 4,739,702 6,231,189 15,881,984 21,120,664 ----------- ----------- ----------- ----------- Net interest income 5,675,585 5,380,275 17,237,113 16,094,782 Provision for loan losses 0 50,000 0 403,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 5,675,585 5,330,275 17,237,113 15,691,782 ----------- ----------- ----------- ----------- Noninterest income, net Service and other fees 227,912 112,176 575,615 417,755 Mortgage banking activities, net 1,340,555 718,158 3,471,254 2,212,961 Other, net 28,481 39,964 138,169 90,853 ----------- ----------- ----------- ----------- Total noninterest income, net 1,596,948 870,298 4,185,038 2,721,569 ----------- ----------- ----------- ----------- Noninterest expense Compensation and benefits 2,170,039 1,877,688 6,497,460 5,800,707 Office occupancy and equipment 838,755 692,972 2,361,199 1,959,502 Other 1,105,525 977,465 3,469,367 2,678,762 ----------- ----------- ----------- ----------- Total noninterest expense 4,114,319 3,548,125 12,328,026 10,438,971 ----------- ----------- ----------- ----------- Income before federal income tax provision 3,158,214 2,652,448 9,094,125 7,974,380 Federal income tax provision 1,063,599 889,085 3,055,264 2,697,792 ----------- ----------- ----------- ----------- Net income $ 2,094,615 $ 1,763,363 $ 6,038,861 $ 5,276,588 =========== =========== =========== =========== Basic earnings per share $ 0.36 $ 0.30 $ 1.04 $ 0.91 =========== =========== =========== =========== Diluted earnings per share $ 0.35 $ 0.30 $ 1.03 $ 0.90 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements PAGE 2 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED MARCH 31, ------------------------------ 2003 2002 ---- ---- OPERATING ACTIVITIES Net income $ 6,038,861 $ 5,276,588 Adjustments to reconcile net income to net cash provided by (from) operating activities Depreciation and amortization 1,037,131 760,458 Provision for losses on loans 0 403,000 Accretion of unearned discount and deferred loan origination fees, net (928,800) (845,019) Gain on sale of loans receivable held for sale, net (4,432,233) (2,240,945) Gain on disposal of real estate owned, net 0 (15,006) Federal Home Loan Bank stock dividends (352,575) (407,184) Change in accrued interest on investments, loans, and borrowings, net 25,532 (1,529,328) Origination of loans receivable held for sale, net (286,234,946) (227,396,842) Sale of loans receivable held for sale, net 267,807,051 232,588,677 Change in other, net 4,579,569 (3,219,427) ------------- ------------- Net cash provided by (from) operating activities (12,460,410) 3,374,972 ------------- ------------- INVESTING ACTIVITIES Loan and mortgage-backed securities repayments and originations, net (15,902,129) (1,864,772) Disposals of real estate owned 22,779 283,139 Securities purchased (30,000,000) (10,000,000) Securities maturities 55,071,590 67,264 Additions to office properties and equipment, net (2,755,880) (2,036,850) Increase in real estate held for investment 0 (350,000) ------------- ------------- Net cash used by (from) investing activities 6,436,360 (13,901,219) ------------- ------------- FINANCING ACTIVITIES Net increase in demand deposits, NOW, and passbook savings 12,991,354 17,845,976 Net decrease in time deposits (4,400,481) (11,926,673) Net decrease in Federal Home Loan Bank advances (606,255) (45,113,028) Increase in notes payable 0 650,000 Decrease in notes payable (1,803,910) 0 Purchase of treasury stock (181,876) (92,675) Proceeds from exercise of stock options 40,513 82,353 Cash dividend paid (1,226,643) (1,134,804) ------------- ------------- Net cash provided by (from) financing activities 4,812,702 (39,688,851) ------------- ------------- Net increase (decrease) in cash and cash equivalents (1,211,348) (50,215,098) Cash and cash equivalents at beginning of period 14,313,688 65,395,118 ------------- ------------- Cash and cash equivalents at end of period $ 13,102,340 $ 15,180,020 ============= ============= Supplemental disclosures of cash flow information: Cash payments of interest expense $ 15,949,322 $ 22,616,019 Cash payments of income taxes $ 3,070,000 $ 2,450,000 Supplemental noncash investing activity: Transfer of loans to real estate owned $ 0 $ 283,332
See accompanying notes to consolidated financial statements PAGE 3 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 (UNAUDITED) 1. The accompanying consolidated interim financial statements were prepared in accordance with regulations of the Securities and Exchange Commission for Form 10-Q. All information in the consolidated interim financial statements is unaudited except for the June 30, 2002 consolidated statement of financial condition which was derived from the Corporation's audited financial statements. Certain information required for a complete presentation in accordance with generally accepted accounting principles has been condensed or omitted. However, in the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring accruals, necessary to fairly present the interim financial information. The results of operations for the three and nine months ended March 31, 2003 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2003. The results of operations for PVF Capital Corp. ("PVF" or the "Company") for the periods being reported have been derived primarily from the results of operation of Park View Federal Savings Bank (the "Bank"). PVF Capital Corp.'s common stock is traded on the NASDAQ SMALL-CAP ISSUES under the symbol PVFC. 2. Recently Issued Accounting Standards In November 2002, FASB issued Interpretation (FIN) No. 45, Guarantor's Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which requires new disclosures for guarantees for beginning in the interim period ended March 31, 2003. FIN 45 applies to standby letters of credit but not to commercial letters of credit or loan commitments. Beginning January 1, 2003, any fees received for a new or modified standby letter of credit are recorded as a liability to reflect the fair value of the guarantee and not as income. If no fee is received, then a fair value of that guarantee must be determined and recorded. The liability is reduced as the guaranteed is released. Page 4 PART I FINANCIAL INFORMATION ITEM 1 SFAS No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement 123" was issued in December 2002 and amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This Statement also requires prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Stock Compensation: Employee compensation expense under stock is reported using the intrinsic valuation method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at the date of grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock Based Compensation."
Three months ended Nine Months Ended March 31, March 31, 2003 2002 2003 2002 Net income as reported $2,094,615 $1,763,363 $6,038,861 $5,276,588 Less: Pro forma compensation expense, net of tax $ 35,982 $ 13,009 $ 107,948 $ 39,026 Pro forma net income $2,058,633 $1,750,354 $5,930,913 $5,237,562 Basic earnings per share $ 0.36 $ 0.30 $ 1.04 $ 0.91 Pro forma basic earnings per share $ 0.36 $ 0.30 $ 1.02 $ 0.91 Diluted earnings per share $ 0.35 $ 0.30 $ 1.03 $ 0.90 Pro forma diluted earnings per share $ 0.35 $ 0.29 $ 1.01 $ 0.89
Page 5 PART I FINANCIAL INFORMATION ITEM 1 3. The following table discloses Earnings Per Share for the three and nine months ended March 31, 2003 and March 31, 2002.
Three months ended March 31, 2003 2002 --------------------------------------- -------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- ---------- BASIC EPS Net Income $2,094,615 5,790,026 $ 0.36 $1,763,363 5,833,013 $ 0.30 EFFECT OF STOCK OPTIONS 114,117 0.01 104,916 0.00 DILUTED EPS Net Income $2,094,615 5,904,143 $ 0.35 $1,763,363 5,937,929 $ 0.30 Nine months ended March 31, 2003 2002 --------------------------------------- -------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- ---------- BASIC EPS Net Income $6,038,861 5,791,400 $ 1.04 $5,276,588 5,777,858 $ 0.91 EFFECT OF STOCK OPTIONS 85,010 0.01 106,102 0.01 DILUTED EPS Net Income $6,038,861 5,876,410 $ 1.03 $5,276,588 5,883,960 $ 0.90
Note - Shares represent average shares for the period adjusted for Treasury Stock. Stock options for 89,809 and 89,809 shares of common stock were not considered in computing dilutive earnings per common share for the three and nine month periods ended March 31, 2002 because they were anti-dilutive. Stock options for -0- and 7,000 shares of common stock were not considered in computing dilutive earnings per common share for the nine month period ended March 31, 2003 because they were anti-dilutive. Page 6 Part I Financial Information Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis discusses changes in financial condition and results of operations at and for the three-month and nine-month periods ended March 31, 2003 for PVF Capital Corp. ("PVF" or the "Company"), Park View Federal Savings Bank (the "Bank"), its principal and wholly-owned subsidiary, PVF Service Corporation ("PVFSC"), a wholly-owned real estate subsidiary, Mid Pines Land Co., a wholly-owned real estate subsidiary, and PVF Holdings, Inc., PVF Community Development, and PVF Mortgage Corporation, three wholly-owned and currently inactive subsidiaries. FORWARD-LOOKING STATEMENTS - -------------------------- When used in this Form 10-Q, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area, competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. FINANCIAL CONDITION - ------------------- Consolidated assets of PVF were $695.9 million as of March 31, 2003, an increase of approximately $16.3 million, or 2.4%, as compared to June 30, 2002. The Bank remained in regulatory capital compliance for a well capitalized institution with tangible, core, and risk-based capital levels on a fully phased-in basis of 8.17%, 8.17% and 11.55%, respectively at March 31, 2003. During the nine months ended March 31, 2003, the Company's cash and cash equivalents, which consist of cash, interest-bearing deposits and federal funds sold, decreased $1.2 million, or 8.5%, as compared to Page 7 Part I Financial Information Item 2 FINANCIAL CONDITION CONTINUED - ----------------------------- June 30, 2002. The change in the Company's cash and cash equivalents consisted of decreases in interest-bearing deposits and federal funds sold of $5.3 million and an increase in cash of $4.1 million. The net $39.6 million, or 6.8%, increase in loans receivable, loans receivable held for sale and mortgage-backed securities during the nine months ended March 31, 2003, resulted from increases in loans receivable of $20.4 million and loans receivable held for sale of $22.9 million and a decrease in mortgage-backed securities of $3.7 million. The increase of $20.4 million in loans receivable included increases of $12.7 million in home equity loans, $12.0 million in commercial real-estate loans, $9.0 million in commercial equity line of credit loans, $2.4 million in construction and land loans, net, and $1.5 million in consumer loans. These increases were offset by decreases of $13.3 million in single-family mortgage loans, and $3.9 million in multi-family loans. The increase of $22.9 million in loans receivable held for sale is attributable to timing differences between the origination and sale of loans originated for sale. The Bank typically originates single-family fixed-rate loans for sale, while retaining single-family adjustable-rate loans for investment. During periods of lower interest rates borrowers are generally attracted to fixed-rate financing, while the reverse is true during periods of higher interest rates. The decrease in mortgage-backed securities resulted from both scheduled principal payments and pre-payments received of $3.7 million. There were no material changes to the composition of the mortgage loan portfolio. Securities decreased by $25.0 million, or 45.5%, as the result of the purchase of $30.0 million in newly issued securities and call options exercised on $55.0 million in securities held to maturity. The increase of $1.7 million, or 17.5%, in office properties and equipment is the result of capital improvements to our Corporate Center office in Solon, Ohio, in addition to the opening of two new branch offices and the relocation of one branch office. The decrease of $30,500 in real estate owned properties resulted from proceeds received on the sale of two developed building lots. Investment in stock with the Federal Home Loan Bank of Cincinnati increased by $0.4 million due to the receipt of stock dividends. The increase in prepaid expenses and other assets of $0.9 million, or 15.7%, is primarily attributable to an increase in the book value of mortgage servicing rights of $0.5 million that was the result of the high volume of loan sales during the current period. At March 31, 2003, the Company serviced $578.8 million in single-family mortgage loans, and carried an asset for mortgage servicing rights totaling $3.8 million, or 65 basis points, of total serviced loans. Deposits increased by $8.6 million, or 1.8%, as a result of special promotional rates offered with the opening of two new branch offices. The Company will consider the use of special promotional rates in the future to attract new deposits or to establish a deposit base when opening new branches. The increase in accrued expenses and other liabilities of $8.4 million, or 74.3%, is primarily the result of timing differences between the collection and remittance of payments received on loans Page 8 Part I Financial Information Item 2 FINANCIAL CONDITION CONTINUED - ----------------------------- serviced for others. Notes payable decreased by $1.8 million, or 21.8%, as a result of principal repayments. The decrease in advances from borrowers for taxes and insurance of $3.0 million, or 40.5%, is due to timing differences between the collection and payment of escrow funds. The decrease of $0.6 million, or 0.5%, in advances from the Federal Home Loan Bank was the result of the repayment of maturing advances. The increase in deposits of $8.6 million, funds from the decrease of $25.0 million in securities held to maturity, the repayment of $3.7 million in mortgage-backed securities, the decrease of $1.2 million in cash and cash equivalents, funds of $8.4 million collected on serviced loans, and earnings of $6.0 million were used to fund the increase of $43.3 million in total loans receivable, the increase of $1.7 million in office properties and equipment, the increase of $0.9 million in prepaid expenses and other assets, the increase of $0.4 million of stock in the Federal Home Loan Bank of Cincinnati, the decrease of $3.0 million from borrowers for taxes and insurance, repay $1.8 million in notes payable, repay $0.6 million in advances, and pay a dividend of $1.2 million. RESULTS OF OPERATIONS Three months ended March 31, 2003, - --------------------- compared to three months ended March 31, 2002. PVF's net income is dependent primarily on its net interest income, which is the difference between interest earned on its loans and investments and interest paid on interest-bearing liabilities. Net interest income also includes amortization of loan origination fees, net of origination costs. PVF's net income is also affected by the generation of non-interest income, which primarily consists of loan servicing income, service fees on deposit accounts, and gains on the sale of loans held for sale. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities ("interest-rate spread") and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company's interest-rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, net income is affected by the level of operating expenses and loan loss provisions. The Company's net income for the three months ended March 31, 2003 was $2,094,600 as compared to $1,763,400 for the prior year comparable period. This represents an increase of $331,200, or 18.8%, when compared with the prior year comparable period. Net interest income for the three months ended March 31, 2003 increased by $295,300, or 5.5%, as compared to the prior year comparable period. This resulted from a decrease of $1,196,200, or 10.3%, in interest income and a $1,491,500, or 23.9%, decrease in Page 9 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED - ------------------------------- interest expense, both of which resulted from historically low market interest rates during the current period. The decrease in interest income resulted from a decrease of 70 basis points in the return on interest-earning assets in the current period. The decrease in yield, in addition to a modest decrease of $1.3 million in the average balance of interest-earning assets, resulted in an overall decrease to interest income of $1,196,200 in the current period. The decrease in interest expense resulted from a decrease of 97 basis points in the cost of funds on interest-bearing liabilities in the current period. The decrease in cost of funds, in addition to a decrease of $4.5 million in the average balance on interest-bearing liabilities, resulted in an overall decrease to interest expense of $1,491,500 in the current period. The Company's net interest income increased due to an increase of 27 basis points in the Company's interest-rate spread during the current period as compared to the prior year comparable period. A continued decline in market interest rates could result in a negative impact to net interest income. For the three months ended March 31, 2003, no provision for general loan losses was recorded, while a $50,000 provision for general loan losses was recorded in the prior year comparable period. The Company uses a systematic approach to determine the adequacy of its loan loss allowance and the necessary provision for loan losses. The loan portfolio is reviewed and delinquent loan accounts are analyzed individually on a monthly basis with respect to payment history, ability to repay, probability of repayment, and loan-to-value percentage. Consideration is given to the types of loans in the portfolio and the overall risk inherent in the portfolio. After reviewing current economic conditions, changes to the size and composition of the loan portfolio, changes in delinquency status, levels of non-accruing loans, non-performing assets, impaired loans, and actual loan losses incurred by the Company, management establishes an appropriate reserve percentage applicable to each category of loans, and a provision for loan losses is recorded when necessary to bring the allowance to a level consistent with this analysis. Management believes it uses the best information available to make a determination as to the adequacy of the allowance for loan losses. During the three months ended March 31, 2003, the Company experienced a decrease in the loan portfolio of $0.5 million. In addition, the level of impaired loans and classified assets increased by $325,000 and $1.0 million, respectively, while $19,000 in loans were charged off. Management determined it was not necessary to record a provision for loan losses in the current period due to the application of revised reserve percentages, reflecting the Company's historic loss experience to certain loan categories. At March 31, 2003, the allowance for loan losses was $3.9 million, which represented 52.7% of non-performing loans and 0.63% of loans. During the three months ended March 31, 2002, the Company experienced a decrease in the loan portfolio of $17.5 million, increases in the level of impaired loans and classified assets of $0.9 million each, and had $13,000 in loans charged off. Due to increases in impaired loans and classified assets, along with loans charged off during the period, management determined Page 10 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED - ------------------------------- it was necessary to record a provision for general loan losses of $50,000 in the prior period. At March 31, 2002, the allowance for loan losses was $3.9 million, which represented 64.1% of non-performing loans and 0.67% of loans. For the three months ended March 31, 2003, non-interest income increased by $726,600, or 83.5%, from the prior year comparable period. This resulted primarily from an increase of $622,400, or 86.7%, in mortgage-banking activities that resulted from an increase of $1,185,400 in profit on loan sales in the current period offset by a decrease of $563,000 in loan servicing income. The decrease in loan servicing income is attributable to the accelerated write-down of mortgage loan servicing rights resulting from declining market interest rates and increased prepayment speed on loans serviced for others. The write-down to mortgage loan servicing rights for the three months ended March 31, 2003 was $957,100, representing an increase of $633,900 as compared to the prior year comparable period. Included in the write-down to mortgage loan servicing rights in the current period is a $370,000 write-down for impairment to the fair market value of mortgage loan servicing rights. During these periods, PVF pursued a strategy of originating long-term, fixed-rate loans pursuant to Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA") guidelines and selling such loans to the FHLMC or the FNMA, while retaining the servicing. The results of operations from mortgage-banking activity for the three months ended March 31, 2003 are attributable in large part to historically low market interest rates and are not necessarily indicative of expected future results. Service and other fees increased by $115,700, or 103.2%, in the current period, primarily due to increases in loan prepayment penalties and late charge fee income. Non-interest expense for the three months ended March 31, 2003 increased by $566,200, or 16.0%, from the prior year comparable period. This was primarily the result of an increase in compensation and benefits of $292,400, or 15.6%, as the result of increased staffing, incentive bonuses paid, and salary and wage adjustments. Office occupancy and equipment increased $145,800, or 21.0%, due to the operation of two additional branch offices along with repairs and maintenance costs to our Corporate Center office. The increase of $128,000, or 13.1%, in other non-interest expense was attributable to increases in telephone line costs resulting from an upgrade to our computer network, costs of outside services attributable to the opening of two new branch offices and the relocation of an existing branch office, and real estate owned expense. The federal income tax provision for the three-month period ended March 31, 2003 increased to an effective rate of 33.7% for the current period from an effective rate of 33.5% for the prior year comparable period. Page 11 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED - ------------------------------- RESULTS OF OPERATIONS Nine months ended March 31, 2003, - --------------------- compared to nine months ended March 31, 2002. The Company's net income for the nine months ended March 31, 2003 was $6,038,900 as compared to $5,276,600 for the prior year comparable period. This represents an increase of $762,300, or 14.4%, when compared with the prior year comparable period. Net interest income for the nine months ended March 31, 2003 increased by $1,142,300, or 7.1%, as compared to the prior year comparable period. This resulted from a decrease of $4,096,400, or 11.0%, in interest income and a $5,238,700, or 24.8%, decrease in interest expense, both of which resulted from historically low market interest rates during the current period. The decrease in interest income resulted from a decrease of 85 basis points in the return on interest-earning assets in the current period. The decrease in yield on interest-earning assets, resulted in an overall decrease to interest income of $4,096,400 in the current period. The decrease in interest expense resulted from a decrease of 114 basis points in the cost of funds on interest-bearing liabilities in the current period. The decrease in cost of funds, in addition to a decrease of $3.0 million in the average balance on interest-bearing liabilities, resulted in an overall decrease to interest expense of $5,238,700 in the current period. The Company's net interest income increased due to an increase of 29 basis points in the Company's interest-rate spread during the current period as compared to the prior year comparable period. A continued decline in market interest rates could result in a negative impact to net interest income. For the nine months ended March 31, 2003, no provision for general loan losses was recorded, while a $403,000 provision for general loan losses was recorded in the prior year comparable period. The Company uses a systematic approach to determine the adequacy of its loan loss allowance and the necessary provision for loan losses. The loan portfolio is reviewed and delinquent loan accounts are analyzed individually on a monthly basis with respect to payment history, ability to repay, probability of repayment, and loan-to-value percentage. Consideration is given to the types of loans in the portfolio and the overall risk inherent in the portfolio. After reviewing current economic conditions, changes to the size and composition of the loan portfolio, changes in delinquency status, levels of non-accruing loans, non-performing assets, impaired loans, and actual loan losses incurred by the Company, management establishes an appropriate reserve percentage applicable to each category of loans, and a provision for loan losses is recorded when necessary to bring the allowance to a level consistent with this analysis. Management believes it uses the best information available to make a determination as to the adequacy of the allowance for loan losses. During the nine months ended March 31, 2003, the Company experienced growth in the loan portfolio of $43.3 million, a decrease in the level of impaired loans of $433,000, an increase in classified assets of Page 12 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED - ------------------------------- $115,000, and had $19,000 in loans charged off. Management determined it was not necessary to record a provision for loan losses in the current period due to the application of revised reserve percentages, reflecting the Company's historic loss experience to certain loan categories, along with a decrease to impaired loans. At March 31, 2003, the allowance for loan losses was $3.9 million, which represented 52.7% of non-performing loans and 0.63% of loans. During the nine months ended March 31, 2002, the Company experienced growth in the loan portfolio of $8.6 million, increases in the level of impaired loans and classified assets of $0.7 million each, and had $40,000 in loans charged off. Due to the growth of the loan portfolio, increases in the level of impaired loans and classified assets, along with loans charged off during the period and changes to the overall composition of the loan portfolio, management determined it was necessary to record a provision for general loan losses of $403,000 in the prior period. At March 31, 2002, the allowance for loan losses was $3.9 million, which represented 64.1% of non-performing loans and 0.67% of loans. For the nine months ended March 31, 2003, non-interest income increased by $1,463,500, or 53.8%, from the prior year comparable period. This resulted primarily from an increase of $1,258,300, or 56.9%, in mortgage-banking activities that resulted from an increase of $2,191,300 in profit on loan sales in the current period offset by a decrease of $933,000 in loan servicing income. The decrease in loan servicing income is attributable to the accelerated write-down of mortgage loan servicing rights resulting from declining market interest rates and increased prepayment speed on loans serviced for others. The write-down to mortgage loan servicing rights for the nine months ended March 31, 2003 was $2,025,300, representing an increase of $1,196,800 as compared to the prior year comparable period. Included in the write-down to mortgage loan servicing rights in the current period is a $370,000 write-down for impairment to the fair market value of mortgage loan servicing rights. During these periods, PVF pursued a strategy of originating long-term, fixed-rate loans pursuant to Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA") guidelines and selling such loans to the FHLMC or the FNMA, while retaining the servicing. The results of operations from mortgage-banking activity for the nine months ended March 31, 2003 are attributable in large part to historically low market interest rates and are not necessarily indicative of expected future results. Service and other fees increased by $157,900, or 37.8%, primarily due to increases in loan prepayment penalties and late charge fee income. In addition, other non-interest income, net, increased by $47,300 in the current period, primarily due to recoveries of amounts previously charged off. Non-interest expense for the nine months ended March 31, 2003 increased by $1,889,100, or 18.1%, from the prior year comparable period. This was primarily the result of an increase in compensation and benefits of $696,800, or 12.0%, as the result of increased Page 13 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED - ------------------------------- staffing, incentive bonuses paid, and salary and wage adjustments. Office occupancy and equipment increased $401,700, or 20.5%, due to the operation of two additional branch offices along with repairs and maintenance costs to our Corporate Center office. The increase of $790,600, or 29.5%, in other non-interest expense was attributable to increases in legal fees, costs of outside services attributable to the opening of two new branch offices and the relocation of an existing branch office, increased telephone line costs resulting from an upgrade to our computer network, stationery, printing and supplies, postage and special mail. The federal income tax provision for the nine-month period ended March 31, 2002 decreased to an effective rate of 33.6% for the current period from an effective rate of 33.8% for the prior year comparable period. Page 14 Part I Financial Information Item 2 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company's liquidity measures its ability to fund loans and meet withdrawals of deposits and other cash outflows in a cost-effective manner. Management believes the Company maintains sufficient liquidity to meet its operational needs. Part I Financial Information Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ---------------------------------------------------------- There have been no significant changes to the Company's interest rate risk position or any changes to how the Company manages its Asset/Liability position since June 30, 2002. This is attributable to the Company's Asset/Liability Management policy of monitoring and matching the maturity and re-pricing characteristics of its interest-earning assets and interest-bearing liabilities, while remaining short-term with the weighted-average maturity and re-pricing periods. Part I Financial Information Item 4 CONTROLS AND PROCEDURES - ----------------------- Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. In addition, there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. Part II OTHER INFORMATION Item 1. Legal Proceedings. N/A Item 2. Changes in Securities and Use of Proceeds. N/A Item 3. Defaults Upon Senior Securities. N/A Item 4. Submission of Matters to a Vote of Security Holders. N/A Item 5. Other Information. N/A Item 6. Exhibits and Reports on Form 8-K. Page 15 Part II Other Information continued (a) Exhibits The following exhibit is filed herewith: Exhibit Title Number ----- ------ 99 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K None Page 16 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PVF Capital Corp. ---------------- (Registrant) Date: May 14, 2003 /s/ C. Keith Swaney ------------ ------------------------------- C. Keith Swaney President, Chief Operating Officer and Treasurer (Only authorized officer and Principal Financial Officer) Certification I, John R. Male, Chairman of the Board and Chief Executive Officer of PVF Capital Corp., certify that: 1. I have reviewed this quarterly report on Form 10-Q of PVF Capital Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ John R. Male ---------------------------------- John R. Male Chairman of the Board and Chief Executive Officer (Principal Executive Officer) CERTIFICATION I, C. Keith Swaney, President, Chief Operating Officer and Treasurer of PVF Capital Corp., certify that: 1. I have reviewed this quarterly report on Form 10-Q of PVF Capital Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ C. Keith Swaney ------------------------------ C. Keith Swaney President, Chief Operating Officer and Treasurer EX-99 3 ex99fm10q33103-1224.txt EXHIBIT 99 TO FORM 10-Q 3-31-03 Exhibit 99 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned executive officers of the Registrant hereby certify that this Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By:/s/ John R. Male --------------------------------------- Name: John R. Male Title: Chairman of the Board and Chief Executive Officer By:/s/ C. Keith Swaney --------------------------------------- Name: C. Keith Swaney Title: President, Chief Operating Officer and Treasurer Date: May 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----